Fixed Effects Bias in Panel Data Estimators

Hielke Buddelmeyer (), Paul H. Jensen (), Umut Oguzoglu () and Elizabeth Webster ()
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Hielke Buddelmeyer: Melbourne Institute of Applied Economic and Social Research
Umut Oguzoglu: University of Manitoba

No 3487, IZA Discussion Papers from Institute for the Study of Labor (IZA)

Abstract: Since little is known about the degree of bias in estimated fixed effects in panel data models, we run Monte Carlo simulations on a range of different estimators. We find that Anderson-Hsiao IV, Kiviet’s bias-corrected LSDV and GMM estimators all perform well in both short and long panels. However, OLS outperforms the other estimators when the following holds: the cross-section is small (N = 20), the time dimension is short (T = 5) and the coefficient on the lagged dependent variable is large (γ = 0.8).

Keywords: fixed effects; panel data; LSDV; dynamic model (search for similar items in EconPapers)
JEL-codes: C23 O11 E00 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ecm and nep-lab
Date: Written 2008-05
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